Those that could quickly pivot may earn a new set of customers.

The Covid-19 pandemic has exposed the strengths and weaknesses among cannabis companies. While many dispensaries have reported big increases in sales, others find themselves scrambling to address a new landscape.

Making a hard pivot isn't uncommon for cannabis companies, but several were already well-positioned for the crisis.

Whether it was already having delivery enabled sales or the space to create social distancing within stores, several companies have found themselves on the right side of the crisis, while others were clearly unprepared.

Recreational dispensaries in Massachusetts looked like they finally making up lost ground over the slow rollout. The virus caused shoppers to crowd stores in order to stock up.

Those shoppers were right to do so because the state decided there would be no more rec sales, only medical marijuana. This will benefit the medical dispensary owners, but the recreational stores will certainly feel an unlimited closure.

Andy Seeger, a Research Manager at cannabis data firm Brightfield Group said, "COVID is scrambling supply-chains and route-to-market options, forcing the notoriously slow governmental cannabis offices to respond much more rapidly than we have ever seen. Patient access and the healthcare as well as general business sustainability within the industry is now pushing liberalization of multiple markets across the country. This is a strange time, and in some ways an opportunity to right many market inefficiencies within the market by swiftly addressing issues and challenges."

According to Brightfield Group, 52% of cannabis consumers said they stocked up or planned to stock up on cannabis, only 28% said they wouldn't. Even though the virus specifically attacks the respiratory system, only 7% of cannabis consumers said they were going to cut back on inhalable products.

Here are some of the companies that were shelter-in-place ready:

Harborside

Harborside Inc. (HSDEF) (CSE: HBOR) said they already had a robust delivery service and online ordering system (via Jane), and then Jane turned around a software upgrade allowing for curbside pickup within 24 hours of the request. Also in Palm Springs, the company was already equipped with a drive-thru window. They're also hiring more delivery drivers to keep this up.

Peter Bilodeau, interim CEO of Harborside said, "We are pleased with how quickly our team has been able to mobilize and execute operationally to meet the demands of the evolving environment of COVID-19. With the help of Jane Technologies, we were able to quickly enhance our already robust delivery service and online ordering system. We have hired additional delivery drivers to meet the high demand of online orders we have been receiving. Also, our Government Relations representative negotiated with local and state governments to allow for curbside pickup of orders at our key locations. Combined with our Desert Hot Springs location, where we already operate one of two licensed drive-thru dispensaries in the State of California, I am confident that we are well positioned to continue to serve our customers in a safe and compliant manner"

Ayr Strategies

Ayr Strategies Inc. (AYRSF) (CSE: AYR.A) is in states that could have potentially given it problems such as Nevada and Massachusetts, but the company has focused more on locals in Nevada versus the tourist crowd and is well situated for medical patients in Massachusetts.

CEO Jonathan Sandelman said, "We have the necessary logistics and systems in place to support our transition to delivery. This week, we have secured over 35 vehicles to expedite our delivery program, and we aim to transfer as many of our 250 dispensary employees as possible to new roles supporting this business. Additionally, we are maintaining our relationship with Blackbird, Nevada's largest delivery service, which will continue to fulfill a portion of our deliveries.

"The delivery business model is powerful. Our average ticket size of delivery orders has been more than double the average ticket within our brick and mortar stores. Although it is still early, through our tiered delivery options-which allow customers to access lower fees and minimum purchase sizes for advance orders versus premium same day deliveries-we have the potential to generate significant revenue on an attractive cost base given the strong consumer demand. We may retain delivery as a key component of our Nevada operations even after our dispensaries reopen."

Sandelman continued: "In addition to the state designating medical cannabis as an essential service, Massachusetts regulators have accelerated access to medical cards, as many patients stopped renewing their cards after recreational sales began. To expand our patients' access to the products they need, we have extended a program offering discounts of up to 50% off the cost of medical cards. Medical dispensaries across the state, including ours, have seen sales increase throughout March as a result of increased patient demand. Average ticket sizes in our dispensaries have increased 30% relative to the average ticket in January and February."

Ilera Healthcare

Ilera Healthcare, which was acquired by TerrAscend (TRSSF) in late 2019, looks to be well-positioned for the virus. Greg Rochlin, CEO of Ilera said, "At Ilera Healthcare, we've always had a strong e-commerce and online ordering component, but we've seen the percentage of orders being submitted online more than double in the past two weeks as compared to our prior baseline, which was around 15%. I would not be surprised to see that percentage shoot well past 50% in the coming weeks, as more people lean on the convenience, speed, and sanitary benefits of ordering online. To boot, overall business has shot up by double digits in the past two weeks as well, indicating just how much the community relies upon us."

He added, "Finally, we're fortunate in that our location was built to handle this additional volume as we are ready-made to distribute these online orders through a drive-through option. This is incredibly unique in the cannabis industry, as our building was previously a bank location. So the combination of ordering online followed by a drive-through pick-up that enables you to not even leave your car makes for the most health-conscious cannabis interaction that I know of, in Pennsylvania or anywhere else."

Pandemic Worries

Planet 13

Planet 13 Holdings (PLNHF) has targeted most of its market toward the tourist population in Las Vegas. This strategy worked very well, until it didn't.

The company was reporting record sales each month with baskets averaging $100 and more. The superstore had created a café inside and the Cannabis Museum is expected to move in soon. Unfortunately, the virus has put a stop to traveling and the casinos have been shut down for now. The tourist crowd has dried up and along with it, the shoppers at Planet 13.

The company quickly implemented a 24-hour delivery service, but locals mostly frequent other dispensaries. It won't be a surprise to see the company's sales drop due to the pandemic.

MedMen

MedMen (MMNFF) made it clear that it too was targeting the tourists. The company chose locations near airports and in cities with heavy tourist traffic. With airport traffic almost nonexistent, this tourist targeting, like Planet 13, may backfire.

MedMen was already facing a slew of troubles as the creditors wrestled the company away from founder Adam Bierman, now this becomes another problem to tackle.

Another sign that the company may not be weathering this virus storm is that it has issued no Covid-19 updates. While other companies are sending out business updates, MedMen has been conspicuously silent. The only news from MedMen this week has been a change on the board of directors.

The company has noted on its website that it has delivery in select locations, but is encouraging consumers to order online and then come to the store for a pickup. The company did note that it uses its own employees for delivery and was trying to fill orders as quickly as possible, so it may be that frustrated shoppers may turn to other providers if MedMen can't fill orders promptly.

Bottom Line

These types of black swan events truly show which companies were prepared for the unexpected. The companies that could quickly pivot may earn a new set of customers. The cannabis industry knows that loyalty among cannabis consumers is strong and if they can gain a new shopper now, they may have them for many months to come.

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At the time of publication, Borchardt had no positions in any securities mentioned.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider several names mentioned to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

That doesn't mean we'll move straight up over the summer, but we'll get plenty of virus, China, stimulus, cannabis, and unemployment chatter.

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